12/31/14

Here we
present the evolution of GDP per capita (OECD dataset) for Euro area, USA,
China, India, and Russia. In Figure 1, instead of presenting real GDP levels,
we normalize all time series to their respective values in 2008. Euro area is
the looser in term of growth – real GDP has gained 17% since 1995 with the peak
in 2007. Moreover, it is about 4% below
the 2007 level with a negative trend.

It might be
surprising for some readers that USA had the same evolution between 1995 and
2011 with some minor deviations, but definitely has been growing at a larger
rate than Euro area since 2011. In 2013, U.S. was marginally above the 2007
level.

China and
India are winners in growth rate, but still are far behind in terms of GDP per
capita level. Russia is in a middle position in both graphs.

Figure 1.
Real GDP per head for several countries and Euro area all normalized to their
respective levels in 2008.

12/29/14

We have posted on all items in the title of this post separately. Briefly, we predicted oil price to fall to $30 in 2016. Russia is the country critically dependent on oil price. The best real GDP projections for Russia with oil at $60 still include a few years of recession and high inflation. These economic phenomena are famous to punish the poorest part of population - retirees and unqualified personnel. This is the root electorate of United Russia - the current power. In the shade of low oil price and partly demoralized electorate, Russia runs into the 2016 legislative elections. This is kind of perfect storm when all possible negative factors come together and, by positive feedback, multiply damaging power.

This could be extremely heavy burden just for the Russian society if not the Ukraine conflict. Not exaggerating the degree of internal protests initiated by socio-economic degradation we cannot exclude fierce suppression of any kind protest since the beginning of 2015. West will pour some oil (irony) into the internal and external conflicts ... and WWIII.

In March 2014, we
posted on the falling producer price of steel and iron in 2014. This
prediction was right and the PPI of iron and steel has been falling from 238.0 (January
2014) to 225.7 (November 2014). The overall PPI has also dropped by 7.2 points
since March.Here we report that we foresee
no general change in the declining trend. In 2015, we expect that the producer
price index of iron and steel will experience further fall together with oil
and many other commodities.Moreover,
the overall PPI will be also falling and dragging consumer prices down.

For price prediction of various
commodities, our general approach is based on the presence of long-term
sustainable (linear and nonlinear) trends in the evolution of the CPI and PPI
in the United States [1, 2].
The difference between components of these indices is not a random one but is
rather a predetermined process. Using these trends, one can predict consumer
and producer price indices for select goods, services and commodities.

On Seeking Alpha, we first reported on the
evolution of the producer price index (PPI) for iron and steel in July 2009.
We compared our earlier prediction from 2008 with the actual evolution of the
difference between the PPI of steel and iron and the headline PPI and made the
following forecast:

“In the short run, one
can expect a fast recovery of iron and steel prices to the level observed in
January-March 2008, i.e. the index will reach the level 210 to 220. However,
this recovery will not stretch into 2011, and the index of iron and steel will
be declining in the long run to the level of 2001, as depicted in Figure 3. In
other words, the period between 2008 and 2010 is characterized by very high
volatility, which will fade away after 2011.”

Figure 1 in this post reproduces
Figure 3 from the 2009 post, where the green line gives a prediction of the
future evolution. Since 2009, we made several updates considering new data on
both PPIs (June 2010, February 2012, December 2012, August 2013). According to our long-term tradition,
we revisit the previously predicted fall in the producer price index of steel
and iron and formulate a preliminary hypothesis on the evolution in 2015-2016.

Figure 2 displays the difference
between the PPI and the index for iron and steel (BLS code 101) since 1985. Between
1985 and 2000, the curve fluctuates around the zero line, i.e. there was no
linear trend in the absolute difference. The difference is characterized by a
sharp decline between 2001 and 2008. Our main assumption described in the
aforementioned post
was absolutely right - the negative trend observed before 2008, after a short period
of large fluctuations, started its transformation into a positive trend after
2010. In Figure 2, the (slightly updated according to actual data between 2009
and 2011) new trend is shown by green line. This trend suggests that the PPI
grows faster than the index of steel and iron by approximately 2 units of index
per year. This observation was valid between March and November 2014.

Figure 3 demonstrates the most
recent period and confirms that our prediction for 2013
was correct – the difference fluctuates around the green line. As described in
our previous
post, the short-term growth in the price of iron and steel observed in
November 2013 and January 2014 was a transient one (a fluctuation) and the
difference returned to green line in the second quarter of 2014.

We have to confirm our forecast that
the difference will be growing fluctuating around the green line in 2015 and
2016. The price of iron and steel will be declining further before the
difference reach ~10 to 20. Investments
is iron and steel related assets are likely not profitable.

Figure 1.
The prediction of steel and iron price made in 2009.

Figure 2. The difference of the PPI and the
index of steel and iron for the period between January 1985 and November 2014. The
green line was first introduced in 2008.

Figure 3. Same as in Figure 2 for the period
between January 2005 and November 2014. Green line predicts the evolution of
the difference after 2009.

12/28/14

Total economy database gives an opportunity to compare how different countries recovered after the 2008-2009 crisis

Just take a look and find the country of interest. This is GDP per head in 1990 US dollars. Notice the biggest european economies (except Germany) are still below their 2007 level. All BRICS are above their 2007 levels.

Check these journals

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